Auditors again find errors in report

State suggests undermined confidence

For the second year in a row, Spokane Valley city officials have had their knuckles rapped by the state auditor’s office.

As last year, state auditors said they found no evidence that money was misappropriated, but they found errors serious enough to undermine confidence in the city’s financial reports.

More such errors are likely if the city doesn’t improve its procedures, audit manager Deborah Pennick and assistant audit manager Alisha Shaw said Friday in an “exit conference” with City Council members and other city officials.

Pennick and Shaw said the errors auditors found in the new audit – for fiscal 2007 – were fixed, but city officials’ failure to find the mistakes on their own suggested similar errors remain undetected. Audits are based on samples, not an examination of every entry in a city’s books.

Auditors attributed some of the 2007 problems to inadequate oversight in the transfer of asset information from a manual spreadsheet to an automated accounting system.

Some of the problems involved arcane rules for balancing assets and liabilities in the city’s double-entry bookkeeping system. For example, the city overstated its “construction in progress” by more than $21.2 million by failing to keep track of when road projects were completed. As a result, some projects wound up on both sides of the ledger.

Other problems involved basics such as failing to keep receipts for items charged to city credit cards, providing refreshments in the employee break room in violation of city policy and improperly paying a certified public accountant license fee for an employee.

City officials tightened up their handling of petty cash funds as suggested by the auditors.

Shaw said Pennick found $15,770 worth of credit card transactions that weren’t supported by receipts – about 20 percent of the total. They said the undocumented charges appeared to be legitimate, but they couldn’t be sure without receipts.

Compounding the problem, they said $7,081 of the charges without receipts also lacked credit card statements to back them up. Also, in 31 percent of the credit card transactions the auditors examined, supervisors failed to initial receipts to indicate the expenditures were approved.

Pennick said in a letter to city officials that concerns about the 2007 credit card deficiencies prompted an early examination of 2008 credit card transactions, and auditors found $396 worth of charges without receipts.

City Finance Director Ken Thompson said a file full of receipts was lost by accident and efforts to get copies of missing credit card statements were unsuccessful because the city’s bank changed hands and didn’t have records that far back.

He attributed the lost records and other problems to high turnover in his staff.

“It’s really difficult when almost the entire department is new,” Thompson said.

In five years since the city was formed, Spokane Valley has had four accounting managers, seven accountants and three accounting technicians, Thompson said. He said only two of six people on his staff have been with the city more than a year.

Aside from making it difficult to establish routines, the turnover deprives the finance department of institutional memory. Thompson said only he had enough history with the city to prevent an error in which the city would have reported acquiring its police station two years in a row.

In last year’s audit, for fiscal 2006, state auditors said the city’s financial report misstated assets, debts and expenditures. Among the problems, the report attributed $22.9 million in revenue to the city’s property tax even though much of the money came from the sales tax and other taxes.

Then, as now, auditors said no money appeared to have been lost or misappropriated, but the city’s report was unreliable and its failure to catch the mistakes left the door open to more errors.

The faulty 2006 report was prepared by the LeMaster Daniels accounting office in Yakima, but Thompson said the errors were in information the city provided. After that, the city began handling all its accounting work internally.